1.4 Vive la Révolution!

We are now entering revolutionary, not evolutionary, times. Whereas, in the past, the pendulum swung between the importance of technology and content, now these two factors are changing simultaneously, indeed they are feeding off each other. The large incumbents, financial institutions and vendors, are locked into legacy systems, often exacerbated by a legacy business mindset, so change comes with a high price tag.

The big vendors can rely upon their breadth and depth of coverage, especially Bloomberg and Thomson Reuters, because recreating their contributed content is expensive, timely, and resource intensive. When this is combined with their huge installed base, they might not be growing, but they certainly are not going to just disappear. Equally their ‘stickiness’ within trading platforms, risk management systems, portfolio management systems and other enterprise applications means institutions cannot just replace their Vendors.

The big banks have been and continue to aggressively reduce or at the very least control their market data costs. They cannot be relied upon as the main driver for future revenue. This means the market data business has become dependent on expanding or creating new markets.

The good news is that these new markets exist, the bad news is that new players are moving in to exploit the new opportunities, and are better placed to do this than many of the existing information providers. This is especially true in terms of superior technology, adaptability, market reach, and financial firepower.

As market data and information inputs has become a commodity, new value gets created by output data enhancement through original works and analytics. This plays to the strengths of ICE, Markit, MSCI, and S&P GMI, whose proprietary data, original works and benchmarks cannot be replicated, even if similar data sets are available.

Positively, this is unlocking doors to the emergence of new players, new breeds of player and a re-balancing towards under-served markets, targeted by new technologies, using more intelligence based analytical products, and by a far larger, albeit extremely cost averse, audience.

Unfortunately, there is a very big ‘but’. Although technology is an enabler, the end user cannot just do what they like with vast swathes of mission critical data because they are subject to ownership and intellectual property rights (IPRs). Such market data and information comes at a cost, and with contractually limited usage rights.

This has always been a minefield and here at marketdata.guru we will be discussing and providing insights on how best to handle this emerging issues. In conclusion we make four key predictions for the forthcoming revolution:-

Market Data usage will expand rapidly, but

Average costs of supply will drop as overall pie grows, which means

Premiums will gravitate more to proprietary datasets, where

Quality is King, but coverage breadth has its own benefits.

Does legacy market data technology and the real problems with replacing it mean that financial institutions and big vendor’s profitability is under threat in the medium term?